CRA finds that a subsequent year’s payment of a pension benefit to a previously-unidentified beneficiary is only income in that year under s. 56(1)(a)(i) as an “in lieu of” pension amount

A survivor benefit under a registered pension plan (“RPP”) is paid in a taxation year to the Quebec Unclaimed Property Directorate pursuant to the Quebec Unclaimed Property Act because the person entitled thereto (the “right-holder”) has not been determined. That person, when subsequently identified, receives from the Directorate the net amount that the Directorate, in turn, had received from the RPP (i.e., the survivor benefit payable under the RPP (as reduced by income tax source deductions) is paid by the Directorate to the right-holder, as further reduced by its administration fee.

CRA indicated that the amount to be included under s. 56(1)(a)(i) in the right-holder’s income is the gross amount of the survivor benefit payable under the RPP, as indicated in the T4A slip issued by the RPP administrator, which should be included for the taxation year in which the Directorate transferred that amount to the right-holder. Its reasoning was that the amount could not be considered to be “received” as a pension benefit in the year of payment by the RPP administrator to the Directorate because the right-holder had not yet been identified – whereas in the subsequent year of payment over by the Directorate to the right-holder, that right-holder is receiving that amount under s. 56(1)(a)(i) as being “in lieu of” a superannuation or pension benefit.

CRA also indicated that where the right-holder is an estate, it should include the survivor benefit under s. 56(1)(a)(i) in computing its income for the year of receipt – but with a deduction to it and an inclusion to its beneficiaries being applicable where those amounts are distributed in accordance with the usual ss. 104(6), (13) and (24) rules. However, where the administration of the estate has been completed prior to the Directorate being in a position to pay the amount, CRA accepts that an estate beneficiary directly includes the amount under subparagraph 56(1)(a)(i) in computing his or her income.

Neal Armstrong. Summaries of 2 April 2019 Internal T.I. 2016-0649821I7 F under s. 56(1)(a)(i) and General Concepts – Payment and Receipt.